Latest news with #EmmaReynolds
Telegraph
a day ago
- Business
- Telegraph
Savers pour record £14bn into Isas ahead of Reeves crackdown
Savers poured a record £14bn into cash Isas in April amid fears of a raid by Rachel Reeves on the tax-free accounts. Monthly deposits were the highest since the system was introduced in 1999, according to Bank of England data. While Isa deposits tend to rise towards the end of the tax year on April 5, Ruth Gregory, at Capital Economics, said the record total 'was probably due to speculation around the Chancellor considering slashing the cash Isa tax-free allowance'. Ms Reeves has been consulting on changes to the Isa system as she seeks ways to push more money into stocks and shares to boost growth. Savers can currently stash up to £20,000 into an Isa every year, with the option to split the money between cash or stocks and shares. The Chancellor confirmed last month that she will not change the overall annual limit on contributions, although she left the door open to curbing the amount that can be held in cash. Ms Reeves said: 'I'm not going to reduce the limit of what people can put into an Isa, but I do want people to get better returns on their savings, whether that's in a pension or in their day-to-day savings.' Emma Reynolds, the City minister, previously told a Lords committee that cash Isas were draining investment from the London Stock Exchange. 'Why have we got hundreds of billions of pounds in cash Isas? We have failed to drive an investment culture,' she said. Lowering the amount that can be put into cash Isas would mean millions would be able to save less each year tax-free and would face a choice between putting money into savings accounts subject to tax or investing in riskier stocks. Banks and building societies have been urging Ms Reeves to leave the system as it is. David Postings, the chief executive of UK Finance, which represents both banks and building societies, told The Telegraph last month: 'They are an easy-to-understand product that help individuals start saving and set aside money for the future. 'The money banks and building societies hold in cash Isas is also lent out, supporting borrowers and the wider economy.' Robin Fieth, the chief executive of the Building Societies Association (BSA), said: 'Simply changing Isa limits is unlikely to encourage people to invest, but it will hurt people who are responsibly saving for short-term goals, when investing is not appropriate. 'If the Government decides to make any changes to Isa limits it should make them to both stocks and shares Isas as well as Cash Isas, otherwise the administration of the system will become unnecessarily complicated.' Roughly 22.3m British adults hold more than £725bn in Isas, according to government data. The average amount stashed into a cash Isa was £5,295 in the 2022-23 tax year, according to official statistics, although this has climbed further against a backdrop of rising interest rates. 661,000 of the 6.5m people who put some money into an Isa in 2021-22 put in the maximum £20,000 annual limit in cash. While capital gains held in Isas are also tax-free, cash accounts outnumber stocks and shares by a ratio of 2:1. Despite this, more money is held in equities overall, with some £425bn parked in stocks and shares compared with £300bn in cash. James Blower, of The Savings Guru, a comparison site, said the 'astonishing' April deposit total also reflected the fact that interest rates on offer tended to be market-leading. He said: 'This is certainly helping fuel interest because there's very few people who won't be better off choosing an Isa as a result.'
Telegraph
6 days ago
- Business
- Telegraph
How Klarna created a nation of shopaholics
In just a few clicks, that big-ticket purchase you've been mulling over for weeks is reduced to a trifling monthly fee – or postponed until after the next payday. Buy now, pay later deals (BNPL) have long been offered by retailers to help spread costs of big purchases. But Klarna, a Swedish lender specialised in the form of consumer finance, is making them ubiquitous. Emma Reynolds, Economic Secretary to the Treasury, this month said companies like Klarna were operating in a 'wild west' devoid of adequate regulation, as the Government confirmed long-awaited new rules for the sector akin to those followed by banks and other financial institutions. Klarna is increasingly offering the BNPL payment option for more than just one-off big purchases. Everything from haircuts to takeaways can now be snapped up by its users on zero-interest deals merely by filling in a few extra details at online checkouts. It is a formula that won the company an extra million British customers last year, with 11 million now using the service. But there is growing disquiet over whether companies offering BNPL are fuelling imprudent consumer spending. Klarna first courted controversy for its marketing campaign during the depths of Britain's Covid-19 lockdowns. Posts on Instagram by influencers promoting the product at the time called it a 'total mood booster' that enabled them to 'splurge' on their shopping, earning Klarna admonishment from the advertising watchdog in 2020 for having 'irresponsibly encouraged' the use of credit. There are good reasons why consumers have been flocking to BNPL companies like Klarna in recent years. The interest-free deals beat the easily high levels of interest charged on most credit cards. Klarna estimates it has saved UK consumers £470m in credit card interest payments since it began operating in 2014. Data published on its website from 2023 also claims just 5pc of its users made late payments, while the majority fully repaid earlier than needed. BNPL companies typically offer options to pay the full amount on a product right away, split the payment into three equal interest-free payments, or delay the payment for 30 days without paying any interest. Similar offers have also been adopted by payment platform PayPal. Call for affordability checks Klarna, as well as one of its largest competitors, Clearpay, have long been able to sell credit to consumers without affordability checks. Unlike banks, consumers cannot make complaints about the companies to the Financial Ombudsman Service (FOS), which can order firms to pay out compensation in cases where they are found to have acted unfairly. The absence of stringent regulation of BNPL has long sparked calls for tougher measures. New rules were finally confirmed by Labour this month, and will come into effect by the middle of next year. The Financial Conduct Authority will require BNPL operators to conduct affordability checks on their customers, who will be able to bring complaints to the FOS for the first time. Stella Creasy, the Labour MP who raised the complaint over Klarna's Instagram adverts in 2020 with the Advertising Standards Authority, described BNPL companies as 'legal loan sharks'. The MP for Walthamstow singled out the late payment fee charged by the company, which is £5 for orders worth £20 or more, according to Klarna's terms and conditions. Late repayment fees are capped at £10 per order. She has previously made the same criticism of BNPL operators in the House of Commons. Ms Creasy said: 'Given the rapid growth of BNPL in the past few years, it is vital we regulate these legal loan sharks as quickly as possible to try to stem the debts they have pushed so many into.' She also warned of potential loopholes in new rules, which are yet to be finalised in law. 'I urge the FCA to be vigilant and not to rule out acting if these providers try to avoid accountability under these new rules by portraying themselves as working for retailers who aren't covered by these requirements rather than lending money to consumers [directly].' The new regulations are not expected to cover instalment financing deals offered by retailers themselves, presenting potential limitations of their effectiveness. Ms Creasy added: 'But frankly, given the scale of the problem, the sooner these come into force the better.' 'Loans to fund day-to-day spending' Most people using BNPL primarily purchase physical goods, such as technology, clothing and wellness products – according to payments platform Stripe. But there is evidence to suggest that an increasing number of people who use BNPL firms, not only Klarna, are buying day-to-day essentials. It has led to concerns that, instead of using the service for one-off large expenses that are easier to pay over time, consumers are turning to BNPL as a way to fund regular shopping. Klarna has significantly expanded the range of retailers where it is available, with M&S and John Lewis recently partnering with the company. Users can now download a 'one-time card' worth a fixed amount that sits within digital wallets like Apple Pay to be used in person at shops. A survey by Money Wellness, a debt advice company, found a 68pc increase in the number of people seeking help to repay BNPL debt in the past year. The average balance of those seeking debt support rose from £675 to £941 during that time. Sebrina McCullough, of Money Wellness, said: 'We've seen a significant rise in people struggling with 'buy now, pay later' debt, often because they've used it to plug gaps in everyday budgets. For many, it's become a way to spread the cost of essentials, like food shopping, rather than to cover large expenses.' Tom MacInnes, from Citizens Advice, has also noticed this trend. He said: 'We're helping more people than ever before who are struggling to repay unaffordable BNPL credit, and one thing is clear – BNPL is not a choice of convenience. For many, it's become a costly way to pay for basics, with little protection if things go wrong.' Klarna has become so widespread that it is available on takeaway apps including Deliveroo and Uber Eats. There are even some hair salons on Klarna's website that are listed as accepting the form of payment, for which users must pass a credit check before being approved. Most BNPL companies, including Klarna, limit the amount of loans a customer can take out based on their credit rating, allowing a customer with a good repayment record to stack up debt over time. Limits on the individual value of transactions and restrictions are imposed on accounts if they miss payments. Alice Tapper, a personal finance campaigner and author, said the spread of BNPL companies such as Klarna to pay for food was not the best use for the form of payment, but said it helped shoppers who were 'locked out' of obtaining credit cards. 'Is it a net positive? I think it depends on its use. There is a role for it in the market when you consider the cost of credit can be extremely high, and many people find themselves locked out of the financial system. An interest-free option is a good thing. 'It's now available on Deliveroo. Is that a good thing? Probably not; it's hard to argue it's an ethical use.' Ms Tapper added that the target users of BNPL should be 'people who have a one-off large expense, such as costs associated with moving house', for whom 'it [doesn't] make sense to put such purchases on a credit card with high interest that might spike'. 'Not as bad as payday lending' Martyn James, a consumer expert, came to the defence of BNPL companies, including Klarna. He said the sector had 'become a bit demonised over the years, which is a little unfair, as it's not the same as payday lending – which traps people in an endless cycle of debt'. He added: 'You'll be hard pressed to find an online shop that does not have a BNPL option, and the reason it is so popular is that it encourages people to make purchases they don't have the money to make.' However, Mr James said this was concerning at a time when household savings are increasingly low in Britain: 'A lot of people swear by [BNPL] and say paying in instalments makes it easier. 'One in 10 British adults has no cash savings, according to FCA research, making this form of borrowing risky for some. 'But there are loads of people who have no savings whatsoever and live pay cheque to pay cheque. What happens if you get hit with an unexpected bill or are laid off and you can't make that payment?' Klarna refers its customers to debt collectors if payments are not made by the last reminder due date. 'They're not hitting people with large amounts of debt charges, but they are handing people over to debt collection agencies which are aggressive,' he added. New rules to lower risks New rules will target BNPL lenders where they are acting as a third party between retailers and consumers, while instalment plans offered by shops are expected to remain exempt from stricter requirements. Firms offering pay-later financing will be required to conduct affordability checks that determine whether a consumer can afford to pay for a product over the loan period. This usually includes asking for details such as someone's income and regular expenditure each month. It is hoped that new regulations of BNPL will cut the risk of consumers using it for 'frivolous spending' and limit the deals to high-value items. Ben Perks, managing director of Orchard Financial Advisers, welcomed the new rules and said: 'Many people succumb to the ease and appeal of BNPL, but it often turns into a thorn in their side.' He added: 'The lack of responsible lending often sees borrowers over-exposed and stuck with unaffordable payments. With proper checks and balances, there is a place for buy now, pay later, especially on high-value essential items. But it shouldn't be a means to fund frivolous spending.' A Klarna spokesman said: 'With credit card interest rates soaring to record highs of 35pc, more people are turning to interest-free BNPL providers like Klarna. 'We believe UK consumers deserve a fairer alternative – wherever they can pay with a credit card, they should also have the option to pay with interest-free BNPL, helping them avoid the trap of high-interest credit card debt.'
Yahoo
22-05-2025
- Business
- Yahoo
UK Moves to Regulate Growing Buy Now, Pay Later Industry Amid Concerns for Consumers
The United Kingdom is taking steps to regulate the burgeoning buy now, pay later (BNPL) sector with the aim of protecting consumers from taking on untenable debt. The country's Financial Conduct Authority (FCA) this week fielded proposals surrounding the dispensation of the short-term loans, which are repaid over time, and the responsibilities of providers. More from Sourcing Journal White House Announces 'Breakthrough' UK Trade Deal 'Game-Changing' India-U.K. Free Trade Agreement Finally a Done Deal Trump EO Reinforces English Lanugage-Proficiency Requirement for Truckers Under the new rules, financial services providers will be responsible for implementing affordability checks to ensure that consumers are able to handle the debt they accrue, and they will be compelled to provide faster refunds in the event that a purchase is returned. They new laws, which will take effect in 2026, also give shoppers the right to complain to the Financial Ombudsman about their BNPL experiences. According to the U.K. Treasury, the BNPL sector is growing rapidly, with an extra 2 million people coming to use such products in the U.K. since 2022—but regulations are necessary to make sure shoppers aren't taking on more than they can handle. 'Buy-Now, Pay-Later has transformed shopping for millions, but for too long has operated as a wild west—leaving consumers exposed,' Emma Reynolds, Economic Secretary to the Treasury, said in a statement Monday. 'These new rules will protect shoppers from debt traps and give the sector the certainty it needs to invest, grow, and create jobs through our Plan for Change.' The U.K. has been working for several years to develop a new regulatory framework for BNPL—an effort that some in the industry have said they agree with. 'This is good progress for consumers. The area where we believe there is more work to be done is in the way these rules may impact small business growth in the U.K.,' said Janine Hirt, CEO of Innovate Finance, the industry body for FinTech. 'We remain concerned that BNPL business finance provided to sole traders will be in scope of the regulatory regime,' she said. 'Specialist small business finance providers, or wholesale trade suppliers, currently offer this but are likely to withdraw such flexible repayment options, reducing sole traders' access to reliable trade credit products.' A spokesperson for Clearpay, the U.K. branch of Afterpay, told CNBC that rules would 'give clarity and consistency to the sector, establishing a consistent operating environment and compliance standards for all providers,' while a Klarna spokesperson told the outlet that the company looks forward to working with the FCA as the regulation of the space continues to evolve. Earlier this month, Klarna announced that the U.K. has become its third largest market globally, with revenue growing 30 percent in 2024. Since the Swedish fintech firm launched in the U.K. a decade ago, it has engaged 11 million active customers and expanded its merchant base to 60,000, including brands and retailers like John Lewis, Argos and Eurostar. The company also asserts that BNPL services provide an attractive alternative to credit cards. Over the past 10 years, the company said it has helped U.K. shoppers avoid almost half a billion pounds of credit card debt. According to Klarna, most BNPL have lower outstanding balances than credit card users, averaging 150 pounds versus 1,295 pounds. Despite the firm's global growth—on Monday, Klarna revealed in a quarterly earnings announcement that it now has 100 million active users—it's also taken some heavy financial hits as it transitions to a more AI-centric business model. During the first fiscal quarter of 2025, Klarna's revenue ticked up 15 percent, reaching $701 million—but the company also saw a whopping $92-million pretax loss during the quarter, a jump from $47 million in Q1 of 2024. In its reporting, Klarna pointed to hurdles stemming from share-based payments expenses (the company fronts the bill for consumer purchases) and costs related to its now paused initial public offering (IPO). The company noted that its credit losses have grown from $117 million last year to $136 million this year—a 17-point differential—because shoppers have failed to make payments on time. The firm also spoke to the significant challenges of implementing AI across operations, citing 'severance-related restructuring costs' as another reason it's bleeding cash. Klarna has slashed its workforce by 40 percent over the past three years due to the deployment of AI-driven processes, while increasing its share of tech employees from 36 percent in 2022 to 52 percent in Q1 of 2025. CEO and co-founder Sebastian Siemiatkowski nonetheless said the firm's AI-first strategy is 'driving exceptional returns.' Ninety-six percent of the company's workforce are daily AI users, which he said has helped Klarna increase per-employee revenue by 152 percent since 2023. Klarna has 'secured exclusive partnerships with major retailers like Walmart through OnePay, teamed up with DoorDash, and expanded our partnership with eBay to the U.S. after multiple successful European launches,' he added. During Q1, Klarna became Walmart's exclusive provider for financing and it launched a partnership with DoorDash for larger purchases as the delivery service enters new segments like electronics, retail and gifts. 'The momentum is undeniable,' Siemiatkowski said. Despite the company's struggles, the market for BNPL providers from Klarna to Afterpay and Affirm only stands to grow. A recent survey of 1,000 U.S. adult consumers conducted by revealed that more than half (52 percent) utilize BNPL options, with 15 percent trying them out for the first time this year. One-quarter of shoppers pointed to the rising cost of living as the reason, with 59 percent of Gen Z and 58 percent of millennial shoppers utilizing BNPL options regularly. And with consumer confidence at a low, inflation ticking up and the economy on increasingly shaky ground, the study showed that 35 percent of shoppers plan to rely more on BNPL this year.
Western Telegraph
21-05-2025
- Business
- Western Telegraph
New boost for millions who use buy now pay later credit
It follows the popularity of payment platforms such as Klarna, PayPal Pay in 3, Clearpay, Payl8er, Laybuy, DivideBuy, Zilch and Amazon Pay Over Time. New rules include affordability checks to stop people racking up unaffordable debt, and faster access to refunds. From next year, BNPL firms will need to follow consistent standards — so shoppers will know exactly what they're signing up to when they opt to break up payments, whether they can afford it, and how to get help when things go wrong. That means upfront checks to make sure people can repay what they borrow, fairer and faster access to refunds, and the right to complain to the Financial Ombudsman — bringing BNPL in line with other credit products. Emma Reynolds, Economic Secretary to the Treasury, says: "Buy-Now, Pay-Later has transformed shopping for millions, but for too long has operated as a wild west - leaving consumers exposed. "These new rules will protect shoppers from debt traps and give the sector the certainty it needs to invest, grow, and create jobs." Martin Lewis has tweeted a response to the changes, saying: 'We're finally sneaking closer to the long overdue, much needed, consumer protection that regulation of BNPL will bring. "Buy Now, Pay Later is now ubiquitous at online checkouts, many people don't realise it is a form of debt – and that if things go wrong it can mess up their financial lives. "This isn't about knocking BNPL, its about making it safer. BNPL can be useful, allowing those who need to spread payments for a budgeted, necessary purchase like a plumber to do it interest-free. Yet it's been sold as a lifestyle choice, not a debt, and pushed for instinct buys or even takeaways. Too many are in trouble with multiple BNPL repayments, leading to debt-chasing and credit file damage." Good new. The Statutory Instrument for regulating the Buy Now Pay Later sector should be laid today (ie the start of putting it in law). Then there'll be a consultation by the regulator. Here's my official statment... 'We're finally sneaking closer to the long overdue, much… — Martin Lewis (@MartinSLewis) May 19, 2025 Many firms are welcoming the changes, including Saqhib Ali, CEO at ZeroPA, who says: "As a BNPL provider, we welcome consumer protection. Many unscrupulous providers promote BNPL with 3-6 instalments interest free then levy fees, charges and penalties. The young are drawn into incurring many thousands of pounds in BNPL purchases on wants rather than needs. "Without credit checks, income and expenditure review or appraisal of existing arrears, the position for many is daunting. It can lead to stress, anxiety and mental health deterioration. As CEO of ZeroPA we charge no interest, fees or charges and offer up to 12 instalments on charity shop purchases of £50-£150 towards furniture, clothing, small electricals and white goods." The moves are also being broadly welcomed by financial experts across the industry. Ben Perks, managing director at Orchard Financial Advisers says: "About time. Many people succumb to the ease and appeal of Buy Now, Pay Later, but it often turns into a thorn in their side. The lack of responsible lending often sees borrowers over exposed and stuck with unaffordable payments. "With proper checks and balances, there is a place for buy now, pay later, especially on high value essential items. But it shouldn't be a means to fund frivolous spending." Recommended reading: Tony Redondo, founder at Cosmos Currency Exchange says: "The 11 million consumers may cheer the new BNPL (Buy Now, Pay Later) rules, gaining affordability checks, section 75 refunds and FOS access to curb debt. This is vital amid an economic climate with inflation set to rise to 3.7%, rising unemployment and meagre economic growth of 0.75% but the 2026 delay risks festive overspending. "BNPL firms like Klarna brace for compliance costs. Retailers may well fear sales dips with Klarna's 22,000 partners already feeling the squeeze. "The FCA aims to tame the 'wild west,' yet over-regulation might choke fintech innovation, leaving low-income users reliant on fewer choices and costlier loans. Meanwhile, systemic issues like housing unaffordability fuel BNPL reliance, urging broader reforms. "Balancing consumer safety with market vitality remains the challenge."
Yahoo
21-05-2025
- Business
- Yahoo
Reeves backs down on plans to cut Isa limit
Rachel Reeves has backed down on plans to reduce the tax-free Isa savings allowance, as she bowed to mounting pressure from the City. The Chancellor has confirmed that she will not change the £20,000 annual limit on Isas, in a move that will benefit millions of savers. The reversal comes just days after The Telegraph revealed banks' opposition to the proposed overhaul, which included plans to slash the £20,000 allowance to as low as £4,000 in an attempt to boost the stock market and kickstart growth. Speaking to the BBC on Monday, Ms Reeves said: 'I'm not going to reduce the limit of what people can put into an Isa, but I do want people to get better returns on their savings, whether that's in a pension or in their day-to-day savings. 'And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people. 'But I absolutely want to preserve that £20,000 tax-free investment that people can make every year.' Cash Isas, which are held by 18m people, allow households to save without having to pay income tax on the interest. But in February, Emma Reynolds, the Economic Secretary to the Treasury, told a Lords committee that the savings product was draining investment from the London Stock Exchange. 'Why have we got hundreds of billions of pounds in cash Isas? We have failed to drive an investment culture,' she said. Shortly after, the Treasury said that wholesale reform of Isas would come 'under review' before the Autumn Budget later this year. The Chancellor also told MPs that overhauling Isas 'would be worthwhile'. While insisting that the £20,000 limit will remain in place, Ms Reeves suggested she could still alter Isa rules to boost investment in stocks and shares. Such reforms have already been supported by investment giants such as Fidelity International. The Chancellor said on Monday: 'One of the reasons why we're looking at advice and guidance that financial firms can give to their customers is to make sure that people are making informed decisions about how to invest their money, whether that's their pension savings or their ISA savings.' However, the climbdown comes after banking executives last week told Emma Reynolds that the public prefers saving cash to investing in riskier shares. They said households would simply switch to traditional savings accounts if the £20,000 Isa allowance was lowered. Ms Reynolds met with leaders from HSBC, NatWest and Lloyds last Thursday, along with the Building Societies Association. During that meeting, she was warned that the changes would impose higher tax bills on pensioners and do little to boost growth. A source close to the talks said: 'People choose cash. People, particularly pensioners, want to be able to get hold of their money.' Stuart Haire, the chief executive of the Skipton Building Society, told The Telegraph: 'We agree with the Government that people in the UK should increase, if they have the wherewithal and the risk appetite, the amount of money they have got in equities. 'However, changing the cash Isa limit will not do that, so therefore it's the wrong tool to achieve the policy outcome.' Ms Reynolds was also told that cutting the Isa allowance risked undermining building societies because of rules requiring them to fund mortgage lending through customer deposits. Half of this funding must come from deposits, of which 40pc is taken from cash Isas. The rules also restrict building societies from offering various investment products, including stocks-and-shares Isas. This means any decision to lower the tax-free allowance could lead to a drop in their deposits. The popularity of cash Isas hit a new record last year, with savers using the product to stash away more than £49.8bn. This represented a 6pc increase on the year prior. After initial reports in January that Ms Reeves was considering changes to cash Isas, Hargreaves Lansdown reported a surge in account openings. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
